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Is the non-refundable 10% deposit law in Spain unfair?

Something happened to me this week… something, that during the years that I’ve been providing a service to buyers and sellers of property in Tenerife, I’ve often wondered what would actually happen if it ever came to it.

That “something” was that a buyer didn’t complete on their proposed purchase…madness I know, but totally out of the buyer’s hands unfortunately and a sad occurrence for both buyers and sellers.

This caused me to wonder if the 10% non-refundable deposit is fair or not.

What’s the law about buying property in Tenerife?

For those of you that maybe haven’t bought a property here, perhaps don’t know about the law or haven’t read our Tenerife Buyer’s Guide, I’ll clarify the point. If you intend to buy a property here in Spain, not just Tenerife, you must show your intention is serious by paying a deposit of 10% of the agreed purchase price of that property.

In my opinion this 10% should be held by an independent party, I normally recommend the use of a lawyer or gestor. Now, the law here states that if the property sale doesn’t complete due to the seller pulling out, double the deposit is paid to the back buyer and on the other hand if the buyer doesn’t complete on the purchase, they lose all of their deposit.

In our contract we have one reason and one reason only that the buyer can have their deposit back and that’s if they’re trying to obtain a mortgage. We agree with the vendors that if the buyers can’t get the mortgage agreed within a mutually agreeable time schedule, then they can have their 10% back fair and square.

Last week, it happened…the unfortunate buyers had to pull out of their purchase.

They were nearly there but sadly a few things went against them, the Sterling/Euro exchange rate went down at the wrong time and a very unscrupulous person back in the UK had been stringing them along for some months telling them that he was going to be buying a high value item from them…let’s call it a painting…it’s wasn’t a painting but let’s just say for arguments sake it was.

This back and forth with the painting buyer had been going on for some time and admittedly and rightly so the sellers were a little miffed, especially when the buyers wanted to change their plans and asked for an extension to the contract as they felt that they weren’t going to be able to complete in the agreed time that the signed contract stated.

Good on the sellers, they agreed to an extension – obviously they had serious buyers and they wanted to sell their property, of course they also had proof that the 10% deposit had been paid and was secure with the buyer’s lawyer.

The person supposedly buying the painting had, on a number of occasions, told the property buyers that the funds were on their way and that after a few more checks from the bank and money laundering department and once these checks had been done and further paperwork received, the funds would be on their way.

This went on for a good few weeks…the painting buyer telling the property buyers that the funds were on their way but by now the sellers were getting a bit hot under the collar with the buyers and the buyers were at their wits-end with the painting buyer knowing that if they didn’t complete that they were going to lose their deposit…and this deposit was not an inconsiderable sum…to be honest, just this deposit could buy an apartment in Costa del Silencio…!!!

Out of the blue having waited quite a few weeks, the property buyers had a letter from a lawyer in the UK stating that the painting buyer didn’t have any funds and in fact was considering filing for bankruptcy…this was the camel that broke the poor camel’s back…no property sale for the vendors and no dream home for the buyers.

It’s not easy on buyers or sellers…

Now, please don’t think that the sellers had it easy either, they weren’t just living in their property until completion, oh no, they had to find other accommodation, they moved into the apartment below the property they were selling and took a whole load of furniture and stashed that down there too, lived out of suitcases for a couple of months and in fact arranged to buy another property here on the island which, thanks to them using a lawyer, they didn’t end up buying because that property had an embargo on it – BIG problems.

The property sellers who were buying the new apartment had to buy a kitchen, some light fittings and some new furniture to kit out their brand new abode…OK, having been told that they weren’t able to buy the apartment they were able to cancel some of their new things but they’re possibly having to still pay for the kitchen, which they hope to reclaim from the property developer that offered them the apartment with the embargo on it…but nevertheless, a garage full of light fittings and possibly a kitchen to use or sell…not the end of the world but still…

Contract extension

Having extended the contract by a month or so, the buyers had to concede that this purchase wasn’t going to happen and they had to pull out and having knowingly signed a legal Spanish contract with the vendors, they had to leave their deposit with their lawyer knowing that it was to be forfeited and passed to the sellers.

Obviously as an agent we have individual contracts between buyers and sellers because they’re working towards different end results. In our contract with the sellers there’s a clause that says that if the transaction doesn’t go ahead due to the fault of the buyer, then we as an agency will claim half of the original commission that we would have been paid had the sale gone through. It’s not an unreasonable request, we’ve done everything that was required of us and more due to the back and forth between buyer and seller explaining the reasons for the delays and trying to keep the transaction going through…so in essence, more work and half the commission…and it’s coming out of the 10% deposit that was paid to the lawyer in the first place…so the sellers won’t be paying it from their own funds.

So, the upshot is, the clients that were coming over here to semi-retire have lost the value of a small apartment in Costa del Silencio as they haven’t completed their purchase, they signed a contract in this knowledge and although it was really out of their hands they have let it go.

The sellers had to put up with some stress about moving their furniture, buying and then not buying an apartment (luckily for them), buying and then returning some new furniture, they’ll possibly have to store a kitchen that’s being paid for by the developer of the apartment complex and we? … well, we end up with half the commission that we were initially going to charge for the work that we’d already completed and then some.

Everyone went into this transaction in the knowledge of losing or gaining and all knowing the stresses of buying and selling property but as I said at the outset…I’ve never had this happen. The buyer pulling out…awful for all parties but to lose that money and have had no complaining in the outcome is pretty awful.

The sellers move back into their property, a bit stressed but quite a bit better off financially…I’m not complaining either although it would have been better for all concerned if the sale had completed and although I feel sorry for the buyers…those are the rules and they’ve complied with the law of the country they so much want to live in and the law is there for a reason and I must say, I find this system so much better than the system in the UK

Is the non-refundable 10% deposit law in Spain unfair?

So, the question – is the 10% deposit system unfair? … I don’t think so…it certainly stops a lot of potential buyers saying that they want to buy something knowing that they genuinely can’t afford it and as a sad but exemplary example, it shows it works and that the property sellers in this case, although still in their own home haven’t been left will bills and nothing to show for it as they would have been in the UK.

The only losers in this case are the property buyers but as I explained earlier, it was out of their hands – nobody would have put down the value of an apartment as a deposit if they knew that they were messing about.

Let’s hope that buyers and sellers can find what they’re looking for in the future.

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